Investment update for November 2021
Global markets experienced elevated volatility during the month, primarily attributable to the emergence of a potentially more transmissible COVID-19 variant, Omicron. News of the spread of the new variant resulted in a sell off in equities.
While US economic data was generally positive over the month, this was overshadowed by the news of the Omicron variant. Consequently, the travel and leisure sectors were negatively impacted the most followed by the retail sector. That said, US equities produced a relatively small negative return for the month compared to the rest of the world.
In Europe, the economic outlook is mixed. While the overall Eurozone Purchasing Managers Index (PMI) survey rebounded after three consecutive months of decline, there is some divergence in economic data between the underlying countries. The severity of the latest COVID-19 wave has been more acute in countries with lower vaccination levels, such as Germany, and the reintroduction of restrictive measures in response weighed on sentiment.
The Australian equities market outperformed most of its global developed peers in November, driven mainly by strong performance within the Resources sector. In addition, economic activity is rebounding in Australia as the economy recovers post lockdowns.
The oil price fell over the month on concerns of potential lower demand given the increased possibility of countries reimposing lockdowns and travel restrictions due to Omicron. In addition, the decision by the US Strategic Petroleum Reserve to increase the supply of oil into the market, likely contributed to the downward pressure on the oil price.
Global leaders gathered in Glasgow at the start of the month for the UN Climate Change Conference (COP 26) where there were several announcements made in areas including coal, deforestation and methane emissions, but there was no general consensus that outcomes had been achieved as hoped. However, climate change is an area where China and US agreed to work together during the summit.
During the month, US President Biden announced that Jerome Powell would be reappointed for a second four-year term as US Federal Reserve Chairman, subject to approval by the Senate. This removed speculation that perhaps Powell would be replaced by a new appointee. There remains ongoing focus on inflation and the response by the US Fed, with the potential acceleration of tapering of the quantitative easing program and interest rate rises occurring sooner than anticipated.
Given the overall risk sentiment globally due to Omicron, there was a movement to ‘safe haven’ assets, with government bond yields falling and the US dollar appreciating. The Australian dollar depreciated relative to major currencies over November, which had a positive impact on unhedged international investments over the month.
Please view our full investment commentary brought to you by our advisers, Frontier, for a more in depth analysis of market conditions this month. The previous monthly commentary can also be viewed on YouTube.
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